10 Pricing Tips For Small Businesses
Category : Blogs
As our members may know, at each 10-12 meeting we have a breakout session. During these 20 minute sessions we can pick each other’s brains and share our thoughts on a selection of business issues. This month our topic of choice was pricing, mainly how do you choose what prices you should charge and how do you go about implementing a price rise? This proved to be a hot topic for everyone. As small business owners we often feel pressured to charge as little as possible in order to secure business, and this can create a cycle of undercharging that it can be difficult to break out of. Drawing on the points brought up in our breakout sessions, we have 10 top tips for anyone considering setting or changing their prices.
1. Hourly, Monthly Or By Project?
The first big decision you need to make is how you want to structure your pricing. Are you going to have an hourly rate, set up monthly contracts or price everything by project? Each approach has its upsides and downsides, and with each structure you will need to build in a little flexibility. For example, if you are charging monthly, you need a way of allowing clients to upscale or downscale as they need to per month. If you are charging by the project, then you need to have a way of calculating the prices for each project and what happens if the project turns out to be bigger than originally specified. Some job roles work better on an hourly rate, particularly if the time is dependent on the clients speed (for example de-cluttering alongside the client, a younger client may take less time than an older one for the same job). Rolling contracts are great for clients who have the same requirements every month, as this allows you both to be flexible. Or you may want to try and package your service into ‘products’ so that they are easier to price and sell. Try thinking about how your business would use each structure and if they would work for you.
2. Cover All Of Your Costs
When deciding on your pricing, it’s important you cover all of your costs and make a profit, however small. The downfall of many small businesses is that they don’t take into account all costs when setting their pricing. Even a small business offering online services needs to think about the cost of online subscription services and licenses such as Word, the cost of inks, promotional materials, phone lines, power and much more. If you calculate your total monthly costs for running the business before you set out your prices, and this will give you a good base to start from.
3. Experience Or Profit?
With certain business models you need to build up a portfolio of work before you can really get started. Photographers, graphic designers and writers will all come across this problem, as clients want to see examples of their work before they commit to use them. For businesses like this, it may make sense to start with much lower prices in order build up your portfolio, or to implement a ‘try before you buy’ policy before increasing the prices later. You might not make any profit at this stage, but the experience helps you secure business later on. Just make sure you don’t get stuck at this low price rate, as will be impossible for your business to grow.
4. Research Your Competition
If you are drawing a complete blank on what you should be charging, a great place to start is with your competition. Take to Google and start looking up what businesses like yours are charging. Be prepared to make some phone calls if you need to, as some businesses don’t display their prices on their websites. Be sure to take location into account, as this can dramatically influence prices. For example, a business in Fleet might charge £50 an hour for their service, while a business in London might charge £300 an hour for the same thing. Stay local if you can, and build up an idea of where you would like to position yourself. Sometimes the best place to start is in the mid-price range, as you can always increase at a later date.
5. Have An Annual Price Review
Instead of just choosing a random time to change your prices, instead consider an annual price review. January is a good time for this, as it’s a new year and a good chance to refresh relationships. It’s easy for your clients to understand that you have a price review once a year and will avoid sudden, unexpected changes in price. Another good time to implement a price rise is when you introduce a new product or service, even if the price rise only applies to that product.
6. Set Boundaries
We’ve all felt the despair of scope creep. That moment when we realise a simple project has morphed into something far more complicated and bloated because the client keeps asking for more and more things that weren’t in the original brief. These projects can become sprawling and end up being far more time consuming or expensive than you originally planned – and often there’s nothing you can do about it. That’s why it’s important to set out clear boundaries for each project at the beginning. If you’re writing blogs for someone, only allow them 3 free changes. If you’re pricing by the hour, specify the number of hours budgeted for the project, and the cost per hour for exceeding that time.
7. Flexible Pricing
There is always that 1 client you can tell doesn’t care about your prices. You could quote them anything and they would happily pay it. But then there are those who are scraping together every penny for your service because they know they need it. How do you make sure both of those people are happy? Many people swear by flexible pricing in these situations. Use your best judgement and quote based on the customer, rather than the project. If you are willing to be flexible, the extra money you make on the bigger jobs will easily cover the concessions you make for the smaller ones.
8. Ensure Client Confidentiality
When implementing flexible pricing, your own customers can somehow cause issues all by themselves. For example, if someone ask them about your service, they may say you are great value for money because you only charge X. That new person will come to you expecting that sort of price also. The problem comes when the first customers is on a discount or deal under your flexible pricing, and you have to explain to this new prospect that your prices are actually Y. That’s never a nice conversation for anyone involved. To avoid this awkward encounter, add a disclosure paragraph into your contract asking your client not to discuss the rates they are paying. If you are giving them a discount from day 1, explain in the contract that this price is at a discounted rate, and specify what the original price would be.
9. Tell Your Customers
Never spring a price increase on your clients without telling them first. Put your prices on your website and send them an email or a letter explaining why you are putting up your prices, and what to. If you can, give them some notice of the change so that they can get everything prepared. A snap price increase with no communication is a quick route to a lot of unpaid invoices.
10. Don’t Sell On Price!
Finally, remember that price isn’t everything! Sure, there are people out there who will buy solely on price. But there are many more who care about quality, and will be willing to pay that little bit more for good service. You might not end up being the cheapest option, but you are probably the best one, and that’s what makes all the difference.
Pricing can be a tough subject for any business owner to tackle, which is why so many of us under-price our services. The overwhelming reaction to this topic was to stick to your guns and charge what you feel your product or service is worth. We all have an idea in our heads about what our time is worth, and we should never be afraid of saying it. If your clients are telling you that you are amazing value or you should be charging more – believe them! If you want to chat to our members about pricing or take part in one of our breakout sessions, contact us to book your 10-12 meeting.